Golden Cross and Death Cross – What are they?

by | Aug 17, 2021 | Blog

In technical analysis, a golden cross and a death cross are exact opposites. They are recognised using a pair of moving averages and indicate either a bullish trend or bearish trend going forward. To fully understand how to recognise and trade a golden cross or a death cross, it’s important to first know how to read a candlestick chart and understand the concept of moving averages.

Golden Cross

To spot a golden cross on a cryptocurrency chart, we must plot a 200 day moving average and a 50 day moving average. The 200 day moving average will intrinsically be smoother than the 50 day so there will inevitably be points at which the two will cross. A golden cross is when the 50 day moving average crosses up through the 200 day MA. This indicates that a bullish uptrend will follow.

Golden Cross in Crypto and Bitcoin Trading

There is some debate amongst traders as to the most reliable moving averages to use when trying to find a golden cross. Some define it as the 50 day moving average crossing through the 100 day moving average while some prefer to use the 50 day and 200 day moving averages. Regardless of the timeframes, a golden cross is always defined by the shorter-term MA crossing up through the smoother MA.

Death Cross

Death Cross when trading Bitcoin and Crypto

As the name suggests, a death cross suggests the beginning of a bearish downtrend. It is recognised by the shorter-term moving average crossing down through the longer-term MA. This indicator preceded the economic crashes in 1929, 1938, 1974 and 2008. It is not, however, a sure thing as many death crosses have appeared on charts which proved to be false indicators.

 

 

How to use Golden Crosses and Death Crosses in Trading

Using moving averages as a starting point to finding swing trade opportunities is a popular trading method. Take care not to trust them completely, though, as the data shown by these graphs is based on past movements. This means that new information can be diluted by these old numbers. Try looking for the appearance of crosses on different timeframes to confirm the signals and keep an eye out for other patterns such as dojis, bull flags and even cup and handles on a longer-term basis.

In Summary

All technical analysis tools are there for us to make assumptions about what might occur in the short-term future. For scalpers and swing traders, the only way to increase the percentage of trades in profit is to understand as many signals and patterns as possible and train yourself to spot them easily. As a starting point to finding great trading opportunities, moving averages crossing is an obvious signal. Using other patterns and tools in conjunction with the information in this article will help provide a stronger signal and minimise potential losses.

 

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